Ocean Freight Under GST In CIF Contracts: The Journey From Controversy To Clarity

1. Introduction: Correction in Law, Yet Confusion Continues

Although the Government implemented the necessary corrective measures effective from 1 October 2023, a degree of confusion persists among a segment of GST professionals concerning the imposition of IGST on ocean freight. Queries remain regarding the precise implications of Services Reverse Charge Notification No. 10/2017-Integrate Tax (Rate) (28.06.2017) [As amended vide N. No.13/2023-Integrated Tax (Rate) (26.09.2023)], its connection with the judicial rulings in Mohit Minerals, the availability of refunds for prior periods, and whether comparable relief is available for air freight. Much of this uncertainty stems from an often-isolated interpretation of the amendment, without due consideration of the complete litigation history and the legal rationale that necessitated governmental action. In this context, it is essential to undertake a comprehensive examination of the issue, ranging from the structure of CIF imports to judicial review by the Gujarat High Court and the Supreme Court, and ultimately to legislative amendments.

2. CIF Imports and the Genesis of the Dispute

Under the customs valuation framework, imports under CIF (Cost, Insurance, and Freight) are assessed by including freight and insurance costs in the value of the imported goods. Consequently, the proviso to Section 5(1) of the IGST Act, 2017 stipulates that integrated tax on goods, other than those notified by the Government on the recommendation of the Council, imported into India shall be levied and collected in accordance with Section 3(7) of the Customs Tariff Act, 1975. However, the valuation of imported goods shall be determined under the aforementioned Customs Tariff Act, 1975, at the time when customs duties are levied on such goods under Section 12 of the Customs Act, 1962. This methodology ensures that the freight component is subject to IGST once, as part of the value of imported goods.

Despite this settled position, earlier IGST notifications sought to impose IGST separately on the ocean freight component by invoking the reverse charge mechanism (RCM), considering the Indian importer as the liable party to remit the tax-even when the freight service was provided by a foreign shipping line to a foreign exporter, and the importer neither contracted for nor paid for such service. This artificial separation of freight from the CIF value established the basis for the ensuing dispute.

3. Reverse Charge on Ocean Freight: The Core Legal Incongruity

Two fundamental legal deficiencies afflicted the reverse charge levy on ocean freight. Firstly, the Indian importer was neither the service recipient under the contract nor, in economic terms, a party to the agreement, given that the contract of carriage was exclusively between two foreign entities. Secondly, the same freight component had already been subjected to IGST as part of the CIF value at the point of importation. Consequently, imposing IGST again on ocean freight under the reverse charge mechanism resulted in double taxation without any additional taxable event, violating fundamental GST principles.

4. Gujarat High Court Decision in Mohit Minerals - First Judicial Correction

The controversy was initially brought before the Gujarat High Court in Mohit Minerals Pvt. Ltd. v. Union of India. The petitioner challenged the constitutional and statutory validity of the reverse charge mechanism applied to ocean freight within the context of CIF imports. The Gujarat High Court determined that the Indian importer could not be regarded as the recipient of the ocean freight service solely based on a deeming fiction established through a notification. Moreover, the Court observed that since the IGST had already been collected on the CIF value at the time of importation, imposing an additional levy on ocean freight would constitute impermissible double taxation. Accordingly, the levy was held to be ultra vires the IGST Act (Mohit Minerals Pvt. Ltd. v. Union of India, judgment dated 23.01.2020, 2020 (36) GSTL 481 (Guj.)).

5. Supreme Court Judgment - Finality to the Issue

The Union of India transitioned the matter to the Supreme Court. In the case of Union of India & Anr. v. Mohit Minerals Pvt. Ltd., the Supreme Court, through its judgment dated 19 May 2022, affirmed the reasoning of the Gujarat High Court and definitively established the legal position. The Court determined that a CIF contract constitutes a composite supply, comprising the supply of goods along with ancillary services such as transportation and insurance. In the context of this composite supply, the principal supply is identified as the supply of goods, and Integrated Goods and Services Tax (IGST) is accordingly applicable solely to this principal supply at the time of import.

The Supreme Court further elucidated that imposing IGST separately on the transportation component would constitute double taxation, as IGST has already been paid on the composite CIF value. It was also underscored that the GST legislation does not permit the artificial division of a composite supply, nor does it authorise the taxation of a person who is neither the supplier nor the recipient of the service(Union of India & Anr. v. Mohit Minerals Pvt. Ltd., judgment dated 19.05.2022, 2022 (5) TMI 968 / 2022 (61) GSTL 257 (SC)).

6. Relevant Judicial Pronouncement and Administrative Closure

The Supreme Court's judgment has achieved finality in administrative terms. The Central Board of Indirect Taxes and Customs (CBIC), through correspondence numbered F. No. 275/11/2022-CX.8A dated 4th November 2022, notified the Mumbai CGST Commissionerate that the Board had resolved not to submit any Review Petition against the Supreme Court's ruling. This communication dispelled any remaining uncertainties concerning the Government's acknowledgement of the law established by the Supreme Court.

7. Legislative Course Correction: Notification No. 13/2023-IGST (Rate)

To synchronise the statutory framework with the judicial stance, the Government issued Notification No. 13/2023-Integrated Tax (Rate) dated 26 September 2023, effective from 1 October 2023. This notification omitted Entry at S. No. 10 of Services Reverse Charge Notification No. 10/2017-Integrated Tax (Rate) dated 28 June 2017, which stipulated reverse charge mechanisms on ocean freight. Consequently, this action definitively concluded the levy of IGST under RCM on ocean freight in CIF imports.

8. Illustration: How Double Taxation Arose Earlier

An import with a FOB value of USD 100, ocean freight of USD 20, and insurance of USD 5 results in a CIF value of USD 125. IGST is applied on USD 125 at the time of import. From 01.07.2017 to 30.09.2023, IGST was also levied at USD 20 on ocean freight under the reverse charge mechanism, leading to double taxation of that component. However, following the Supreme Court judgment dated 19.05.2022 and Notification No. 13/2023-Integrate Tax (Rate) (26.09.2023) effective from 01.10.2023, this additional levy has been removed.

9A. CIF Imports by Air: Why Mohit Minerals Relief Is Confined to Ocean Freight

At this stage, it is imperative to address a commonly misunderstood issue: whether the relief granted in Mohit Minerals applies to CIF imports transported by air. The litigation before the Gujarat High Court and the Supreme Court was strictly limited to ocean freight, that is, the transportation of goods by vessel. Neither court examined the imposition of GST on air freight.

GST notifications have traditionally distinguished between ocean freight and air freight as separate classifications, each accompanied by unique rate structures and compliance procedures. Notification No. 13/2023-Integrate Tax (Rate) (26.09.2023) deliberately excluded the reverse charge entry about ocean freight by vessel solely. No comparable exemption has been granted concerning air freight. Therefore, even in CIF air imports, the relief provided in the Mohit Minerals case cannot be automatically applied. Although the judgment's conceptual rationale may be persuasive, the legal status of air freight remains unresolved and is subject to litigation. On top of it, Services Reverse Charge N. No. 10/2017-Integrated Tax (Rate) only contained a reference to the transportation of goods by a vessel.

9B. Classification and Rate of GST on Air Freight Services

Services related to Air and Space Transport of Goods are classified under Service Accounting Code (SAC) 996532. These services are subject to Goods and Services Tax (GST) at the prevailing rate of 18%-comprising 9% Central Goods and Services Tax (CGST) and 9% State Goods and Services Tax (SGST), or 18% Integrated Goods and Services Tax (IGST), where applicable. The applicable rate is mandated by Notification No. 11/2017-Central Tax (Rate) dated 28 June 2017, as amended periodically, most recently by Notification No. 15/2025-Central Tax (Rate) dated 17 September 2025.

Unlike ocean freight, no reverse-charge entry for air freight has been omitted, thereby reinforcing the legislative intent that air freight remains a taxable supply of services, governed by its specific statutory framework.

10. Comparative Position under GST: Ocean Freight vs Air Freight (CIF Imports)

11. Refund Implications and Practical Considerations

The Supreme Court judgment, being declaratory in nature, opens the possibility of refund claims for IGST paid under reverse charge on ocean freight in previous periods. However, such claims remain subject to limitation provisions, factual verification, and the treatment of input tax credit already availed. Therefore, each case must be examined independently.

12. Concluding Perspective

The removal of IGST on ocean freight does not constitute a concession but rather a reaffirmation of the fundamental principles of GST - namely, that taxation must be linked to genuine transactions, authentic recipients, and legitimate consideration. The judgments dated 23.01.2020 and 19.05.2022, subsequently supported by administrative acceptance and legislative amendments effective from 01.10.2023, have definitively resolved the legal position concerning ocean freight. Concurrently, the ongoing taxability of air freight under SAC 996532 underscores that judicial relief cannot be inferred by analogy. A disciplined, structured understanding of this issue is imperative for GST professionals to prevent persistent confusion and ensure proper application of the law when resolving their clients' queries.